[casi] Astonishing! Halliburton accused cheating , overcharging

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Published on Friday, December 12, 2003 by the New York Times
U.S. Sees Evidence of Overcharging in Iraq Contract
by Douglas Jehl
WASHINGTON, Dec. 11 ‹ A Pentagon investigation has found evidence that a
subsidiary of the politically connected Halliburton Company overcharged the
government by as much as $61 million for fuel delivered to Iraq under huge
no-bid reconstruction contracts, senior military officials said Thursday.
The subsidiary, Kellogg, Brown & Root, also submitted a proposal for
cafeteria services that seemed to be inflated by $67 million, the officials
said. The Pentagon rejected that proposal, they said.
(This) confirms what we've known for months: Halliburton has been gouging
taxpayers and the White House has been letting them get away with it. It is
deplorable and we need to put an immediate end to it.
Congressman Henry A. WaxmanThe problems involving Halliburton, where Vice
President Dick Cheney was chief executive, were described in a preliminary
report by auditors, the officials said. The Pentagon contracts were awarded
without competitive bidding and have a potential value of $15.6 billion;
recent estimates by the Army have put the current value of the Halliburton
contracts at about $5 billion.
Halliburton denied overcharging and called the inquiry a "routine audit."
Dave Lesar, the company's chairman, president and chief executive, said in
an e-mail statement, "We welcome a thorough review of any and all of our
government contracts."
Dov Zakheim, the Pentagon's budget chief, said, "Contractor improprieties
and/or contract mischarging on department contracts will neither be condoned
nor allowed to continue."
Halliburton, which had more than $12.5 billion in revenues in 2002, has
emerged as a symbol for many people who opposed the war in Iraq and who
claimed that the interests of such companies with close political ties were
given too much consideration by the administration.
Criticism intensified when Halliburton received the no-bid contract to
provide billions of dollars in services in Iraq. Administration officials
counter that few companies have the resources and expertise to carry out the
work needed.
Military officials said the Pentagon was negotiating with K.B.R. over how to
resolve the fuel charges. But Michael Thibault, deputy director of the
Defense Contract Audit Agency, said in a telephone interview that a draft
report by the agency had recommended that the Army Corps of Engineers seek
reimbursement.
The officials said Halliburton did not appear to have profited from
overcharging for fuel, but had instead paid a subcontractor too much for the
gasoline in the first place.
Halliburton has also said that one reason it needed to charge a high price
for fuel was that it must be delivered in a combat zone. Several K.B.R.
workers have been killed or wounded in attacks by Iraqis.
Other questions, in a second contract with the Army, involved unacceptable
delays by the subsidiary in providing cost estimates for dozens of projects
already under way in Iraq, Mr. Thibault said. These violations, for work
that includes the construction of food, housing and other facilities for the
military, could involve inflated costs as well, he added.
A spokeswoman for Halliburton, Wendy Hall, said in an e-mail message that
the inquiry was part of a "routine audit" and that it was "not the fact that
K.B.R. has overcharged."
Mr. Lesar, the chief executive, said in his e-mail: "We will work with all
government agencies to establish that our contracts are not only good for
the United States, but also the company is the best and most qualified
contractor to perform these difficult and dangerous tasks."
Mr. Thibault said that it would be "premature" to describe the auditor's
conclusions as final, that the investigation was continuing and that the
Halliburton subsidiary "deserves a chance to respond to our findings." He
said auditors expected to issue a final report this month, but added that
the preliminary findings involved overcharging that was "potentially very
substantial."
The two Halliburton contracts are by far the largest awarded by the Pentagon
in Iraq. Some Democrats have criticized the awarding of contracts to the
Halliburton subsidiary, saying they might appear to be a political payoff to
a company well connected with Republicans.
But administration and Halliburton officials have denied that politics
played any role in the awards to K.B.R., whose work in Iraq involves a
contract with the Army Corps of Engineers for repairing and restoring Iraq's
oil industry. The initial value of the work was set at $7 billion. A second
contract with the Army for logistical support has a maximum value of $8.6
billion, military officials said.
Mr. Thibault would not be specific about the basis on which the auditors
have found evidence that the Halliburton subsidiary has overcharged for the
fuel it is providing in Iraq under the oil contract.
But government documents show that the United States government is paying
Halliburton an average of $2.64 a gallon to import gasoline to Iraq from
Kuwait, more than twice what others are paying.
Representative Henry A. Waxman, a California Democrat who has been a leading
Congressional critic of the contract, said the preliminary audit "confirms
what we've known for months: Halliburton has been gouging taxpayers and the
White House has been letting them get away with it."
"It is deplorable and we need to put an immediate end to it," Mr. Waxman
said in a written statement. "There needs to be a top-to-bottom review of
all the Iraqi contracts."
Defense Department and other government officials said a draft report of the
audit agency's finding was sent to K.B.R. on Dec. 5 and included "harsh
assessments" of the company's handling of its contract to import fuel from
Kuwait.
Mr. Thibault said that Halliburton had promised a response by Dec. 17, and
that the agency would issue a final report within a week after that. Once
that report is complete, it will be turned over to the clients, including
the Army Corps of Engineers, which contracted with K.B.R. in March for tens
of millions of gallons of gasoline, benzene and other fuel.
The audit agency has also discussed with K.B.R. the delays in the pricing of
elements of the logistics contract, military officials said. Among projects
under way, the company has provided the government with cost estimates for
just 12 orders, with 69 outstanding and overdue, the officials said. They
said the delays raised the possibility that the company would eventually
claim an unacceptably high cost for a project whose work was already largely
completed.
The company's work for the military in Iraq has evolved from putting out oil
field fires to overseeing rebuilding of Iraq's oil infrastructure and
providing fuel. K.B.R. also provides support to American troops, including
serving meals.
Mr. Cheney, the former chief executive, left Halliburton in 2000, after
President Bush asked him to become his running mate.
The Army awarded the logistics contract to Halliburton in 2001, on a
competitive basis, but its size has swelled since the Iraq war, with
additional work awarded to Halliburton without competition. The second
contract, for oil reconstruction projects, was formally awarded in March on
a "sole source" basis, but the decision to give the project to Halliburton
was made in late 2002 by senior administration officials who were part of a
secret task force planning for postwar Iraq.
Don van Natta Jr. contributed reporting from London for this article.
Copyright 2003 The New York Times Company
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